Emission Allowance

3. Accounting Framework for Rights and Obligations of Emissions Reduction Programs
The FASB’s Conceptual Framework provides guidance to standard setters for establishing authoritative guidance. We apply the Conceptual Framework to the components of cap-and-trade programs in section 3.1. Section 3.2 describes the resulting accounting treatment, including income statement effects, of cap-and-trade program rights and obligations that is implied by the Conceptual Framework. 3.1. Using the FASB’s conceptual framework to analyze compliance instruments and compliance obligations Standard setter decisions about the development of US accounting standards are guided by the FASB’s Conceptual Framework. The objective of financial reporting is to ―provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions‖ [FASB, SFAC 1, para. 34]. To achieve that objective, ―financial reporting should provide information to help investors, creditors, and others assess the amounts, timing, and uncertainty of prospective net cash inflows to the related enterprise‖ [FASB, SFAC 1, para. 37]. It should also ―provide information about the economic resources of an enterprise, the claims to those resources (obligations of the enterprise to transfer resources to other entities and owners’ equity), and the effects of transactions, events, and circumstances that change resources and claims to those resources‖ [FASB, SFAC 1, para. 40]. In the FASB’s Conceptual Framework, Concepts Statement No. 2, Qualitative Characteristics of Accounting Information, describes the qualitative characteristics that make financial reporting information useful for making investment, credit and similar decisions—relevance, reliability and comparability. Relevant information is capable of affecting a resource allocation decision; reliable information can be counted on to represent faithfully what it purports to represent;

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